Understanding blockchain technology

What is blockchain ?

What we call Blockchain is a database that transmits information in peer-to-peer format in a transparent way (transactions are visible to everyone), secure (data on the blockchain can’t be modified or falsified), decentralized (without a control body) and autonomous (without human intervention).

Transmission of information: Blockchain makes it possible to transfer any kind of information and assets, such as a file, currencies, security, a share, or a vote between several parties.

Transparency: The information is transparent because it is visible to everyone. Each transaction can be consulted by you and me since the creation of the blockchain.

As well as the virtual identity of the issuer and the receiver of the transaction.

Obviously, his name will not appear publicly only their wallet address will be visible (like this one 0xE3024d368717fd123951b01b01b8d45F03567cB518E (Ethereum Address) a sequence of more or less 40 numbers and letters. Not to be confused with the private key, which allows you to decrypt and access your wallet, which looks like this: 43b5efe89a22be17d8e773888dcb1890c31443eb95e6ac40f64501fd251f1cd8 (Ethereum Private Key), a sequence of more or less 60 numbers and letters.)

Now you’re most certainly thinking “it is not really transparent, we don’t know who’s behind this address”. And you’re partly right, at first glance it’s anonymous. But with some computer knowledge, it’s relatively easy to find out who’s hiding behind this address. Except for some currencies that have made their anonymity a strength, like Monero. But there is also the “private blockchains” that regulates this accessibility to certain people. This may be understandable, for example, for a company that doesn’t want confidential informations to be visible for everyone, including competitors or the press… But we will talk more about it in the article. (Analysis of the different types of blockchain)

Secure: The network can’t be corrupted; the data are not falsifiable. In theory, it is possible to take control of a blockchain with enormous computing power, or at least 51% of the network power. In practice, this would significantly alter its value. We have already seen this situation on blockchains with a low volume of transactions, and therefore minors (like Verge at the beginning of 2018). It is literally impossible to carry out a computer attack on the Bitcoin blockchain, for example.

Decentralized: When making a transaction through your bank or a payment system like Paypal, you are dependent on a third party and you must trust them. The bank or payment system will own your money and verify the transaction itself. On the blockchain, you will trust the “people” for verifying your transaction, and the people in charge of verifying it (minors) will not own your money. Indeed, there is a large number of computers around the world that will check several times the feasibility of your transaction and will execute it, or not.

Autonomous: Some blockchains (such as Ethereum) also allow the programmation of smart-contracts, not restricted by the code, (unlike bitcoin) which will be executed automatically when the obligations of one or several parties are fulfilled. For example, if you want to sign a contract with someone who lives abroad and you are in France. You have to pay him a certain amount of money for a service, so it is better to go through a trusted third party to make sure he meets these obligations and doesn’t fly away with your money. This is the whole point of the intelligent contract, which is carried out without a trusted third party.

How does the blockchain work?

The blockchain works mainly with a token, a crypto-currency. It is important to differentiate the Bitcoin blockchain which is the operating technology behind the Bitcoin cryptocurrency. The first step when you want to use a blockchain is to create a digital wallet. You can create one easily in a few seconds online. Then you will have to register on a cryptocurrency exchange platform.

Be careful to choose a platform where you can buy directly in euros and dollars, some platforms only offer crypto purchases with crypto. You will then transfer your newly purchased cryptocurrency to your wallet to have full ownership.
When you want to use the blockchain, you will, therefore, make a transaction request. (Purchase, sale or transfer) Information relating to your transaction request (digital identity, transaction amount, recipients, dates, etc.) is transmitted to the ledger (the distributed database) by cryptographic hash. (Encryption method). Each block is checked by nodes on the network called minors, according to different methods (or governance) depending on the blockchain used.

The most famous and widespread blockchain is one of the Bitcoin blockchain called “proof of work“. Once your transaction request is sent to the ledger, the minors will hurry to check the transaction. Indeed, the minor who verified it first will receive the mining reward, i.e. a sum in crypto-currency for his work. To do this, the minor must solve an algorithm problem specific to the transaction and the Bitcoin blockchain code. Once resolved, the minor writes his “proof of work” reasoning on the blockchain. If the latter is accepted by the other minors who will check the veracity of the reasoning, (and will also be rewarded for this work), it will be written on the blockchain and the transaction will be completed in no time.

“Also works the other way around, seller to buyer”

Illustrated definition

The international recruitment firm Deloitte simply defines the Blockchain as follows: “You (a “node”) have a transaction file on your computer (a “ledger”). Two network accountants (let’s call them “minors”) have the same file on theirs (therefore “distributed”). When you make a transaction, your computer sends an email to each accountant to inform them.

Each accountant checks if you can afford it (and is paid in “Bitcoins”). The first to verify and validate the commitments performs an “ANSWER TO ALL”, attaching its transaction verification logic (“Proof of work”). If the other accountant agrees, everyone updates their file.

This concept is made possible by the “Blockchain” technology.

Why the Blockchain ?

The application of the blockchain listed above allows a solid improvement in the monetary field, but also in many sectors of activity.

We can start by mentioning the agri-food sector, thanks to the blockchain, companies could have unfailing traceability on the production and distribution of their product. During the horse meat scandal found in Findus lasagna, the company was unable to identify which products were involved and therefore could not remove them from the sales. They could have identified them immediately on blockchain technology and avoided a scandal.

A second example is Carrefour, which proposes in some of its stores to check through an application where has been produced the food, with which ingredients and all this on the blockchain, which allows having accurate and unforgeable information.

The precursors of the blockchain

There are many sectors of activity:

The luxury or wine sector, to enable the fight against counterfeiting, which is a loss of several million euros per year for companies in the sector;

Insurance could automate the terms and conditions of a contract without human intervention;

The health sector is affected by a large number of counterfeit medicines in circulation, the World Health Organization estimates that 700,000 people die each year because of counterfeit medicines; we can also mention banking, internationaltrade, and supply chain, real estate, music, and film sector…

Blockchain also allows us to glimpse a web 3.0, that of the decentralized web and a new economy, the tokenization. The list is still long, and the benefits that blockchain brings are no longer to be proven, but it is important to remember that this technology still faces certain legal, ecological and economic challenges.